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Paul Rejczak

Paul Rejczak

Writer, Sunshine Profits

Stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market…

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Earnings Season Could Trigger New Bull Run In Markets

Bull

The U.S. stock market indexes lost 0.4-0.9 percent on Wednesday, retracing some of their Tuesday's move up, as investors' sentiment worsened again following Syrian conflict escalation worries, among others. The S&P 500 index is currently trading 8.0 percent below its January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 0.9 percent, and the technology Nasdaq Composite lost just 0.4 percent, as it was relatively stronger than the broad stock market yesterday.

The nearest important level of resistance of the S&P 500 index remains at around 2,665-2,675, marked by recent local highs. The resistance level is also at 2,695-2,710, marked by March 22 daily gap down of 2,695.68-2,709.79. On the other hand, level of support is at 2,635-2,640, marked by local lows. The next support level is at 2,600-2,610, marked by Monday's daily low, among others.

We can see that stocks reversed their medium-term upward course following whole retracement of January euphoria rally. Then the market bounced off its almost year-long medium-term upward trend line, and it retraced more than 61.8 percent of the sell-off within a few days of trading. The uptrend reversed in the middle of March, and stocks retraced almost all of their February - March rebound. The index got back down to its medium-term upward trend line. There are still two possible future scenarios. The bearish one, leading us to February low or lower after breaking below medium-term upward trend line, and bullish: medium-term double top pattern or breakout higher. Last Friday's sell-off made the bearish case more likely, but then the market got back higher again. The broad stock market index continues to trade within a short-term consolidation along the above-mentioned upward trend line:

(Click to enlarge)

Will Earnings Releases Outweigh Negative News?

The index futures contracts are trading 0.4-0.5 percent higher vs. their Wednesday's closing prices right now. So, expectations before the opening of today's trading session are positive. The main European stock market indexes have gained 0.1-0.3 percent so far. Will stocks take another attempt at breaking above their short-term consolidation? It may happen if sentiment further improves ahead of coming quarterly earnings releases. Investors will also wait for the Initial Claims number release at 8:30 a.m. Related: Markets Rebound As Trump Plays Down Trade War

The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's decline. The market extends its short-term fluctuations along the level of 2,650. The nearest important level of resistance is now at around 2,660-2,665, marked by local highs. The next resistance level is at 2,670-2,675. On the other hand, support level is at 2,635- 2,640, marked by local lows. The next level of support is at 2,625, marked by yesterday's pre-session low. The futures contract goes sideways following breakdown below its short-term upward trend line, as we can see on the 15-minute chart:

(Click to enlarge)

Less Volatility

The technology Nasdaq 100 futures contract follows a similar path, as it extends its short-term consolidation. The market trades above the level of 6,600. The volatility is somewhat lower than a few days ago when the index bounced off 6,300 mark. Will tech stocks break above their recent trading range or is this just some short-term topping pattern before breaking down? The Nasdaq futures contract continues to trade along its short-term upward trend line, as the 15-minute chart shows:

(Click to enlarge)

Apple Uncertainty, Facebook at Resistance Level, Make or Break?

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market continues to fluctuate slightly below its short-term resistance level of around $175. Is this still a new uptrend or just topping pattern ahead of downward reversal? If the market breaks higher, it could retrace more of March sell-off and get close to record high again. On the other hand, support level is at $165:

(Click to enlarge)

Now let's take a look at Facebook, Inc. (FB) daily chart. The price broke above its short-term consolidation on Tuesday, as it retraced some of its late March sell-off. Investors' sentiment improved after Mark Zuckerberg' Senate hearing. The market remains below medium-term head and shoulders downward reversal pattern.

Related: China Ups Pressure In Artificial Intelligence Race

The nearest important level of resistance is at around $170. On the other hand, support level remains at $150-155, marked by recent local lows. For now, it looks like an upward correction:

(Click to enlarge)

Blue-chip Stocks - No Clear Direction

The Dow Jones Industrial Average formed a positive "Harami" candlestick pattern over a week ago. Then, the market confirmed this reversal pattern despite lower opening of Wednesday's trading session. Since then it fluctuated below the resistance level of 24,500. There is also resistance level at around 24,800, marked by medium-term downward trend line. Will the blue-chip index continue higher? It would have to break above the trend line:

(Click to enlarge)

Concluding, the S&P 500 index will likely retrace some of its yesterday's move down at the opening of today's trading session. Then we may see some more sideways action along recent local highs. It seems that coming quarterly corporate earnings releases slightly outweigh trade war fears, Syrian conflict escalation worries at this moment.

The early March rally failed to continue following monetary policy tightening, trade war fears, negative political news. What was just profit-taking action, quickly became a meaningful downward reversal. Breakdown below over-month-long rising wedge pattern made medium-term bearish case more likely, and after some quick consolidation, the index accelerated lower, towards its early February low. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come. However, recent fluctuations may be some bottoming pattern before an upward reversal.

By Paul Rejczak via Sunshine Profits

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